Speaking at Fiinpro Talk 6 on “Vietnamese banking stocks: investment opportunities and risks,” Nguyen Anh Tu, Deputy Director General of the State Bank of Vietnam’s Monetary Policy Department, said banking stocks did well in 2017 thanks to a favourable economic environment with a positive outlook for growth, well-anchored inflation, improved management of banks, better supervision by the Government, and a decrease in non-performing loans.

With economic growth expected to be even better this year, it would be another good year for the banking sector, he said.

Banks are more likely to make a profit on the back of a strong economy since it stimulates demand for credit, and Vietnam is a bank-based economy with 92 percent of capital in the economy provided by banks according to the National Financial Supervision Council, he said.

Retail lending is increasing due to demand from newly-established small businesses and SMEs, which have traditionally found it difficult to get corporate loans from banks, and increasing consumption by individuals due to positive expectations from the economy and rising affluence, he said.

According to a report from the Boston Consultant group, the size of the middle- and upper-income classes in the country will reach 33 million by 2020, creating huge demand for financial and insurance services.

According to data compiled by StoxPlus from 18 banks, who account for 60 percent of the country’s loans, retail loans are growing at double the rate of corporate loans, and increased their share to 37 percent of total loans.

“Consumer finance has been growing rapidly and playing a part in the parent banks’ story,” Nguyen Quang Thuan, CEO of financial and business information provider StoxPlus, said.

He cited the example of FE Credit, the consumer finance arm of Vietnam Prosperity Joint Stock Commercial Bank (VP Bank), which accounts for the majority of its parent company’s loans and helps VP Bank improve its earnings.

Similarly, HDBank owns HD Saison, a growing consumer finance company.

Besides, lenders like Techcombank, Sacombank, VP Bank, SHB, and Military Bank have posted significant commission incomes from their partnerships with life insurers last year, he added.

Speaking about banking stocks, he said: “[They] still have some room to play.”

He said banks are buying back their bad debts from the VAMC to collect them while their income from lending would remain at around 3 percent.

Fees earned through partnerships with third party financial services providers would drive the earnings growth of banks, especially those with large customer bases, he added.